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August 2019
Foreword 2
The NASSCOM Research report titled “Fintech Lending – Unlocking Untapped Potential” aims to highlight the evolving trends in the field of Fintech Lending
and intricacies involved in this business.
This study includes in-depth primary research and covers market opportunities, competitive trends, success factors, key business models, and growth stories.
We hope you find this study useful, and we welcome your feedback and comments.
Debjani Ghosh
President, NASSCOM
NASSCOM NASSCOM
Acknowledgement Ashish Gupta
Manager - Research
Komal Gupta
Analyst - Policy
This report on the Fintech Lending market in India has been developed by NASSCOM through a comprehensive research process.
The preparation of this report has been made possible with information from various sources and assistance from institutions, enterprises, and
start-ups in India who have given their time and insights to the research team. We wish to sincerely thank all of them for their valuable contributions
without which this report would not have been possible.
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5 Executive Summary
TABLE OF CONTENTS
24 Fintech Lending Business Opportunities
32 NASSCOM Recommendations
3
Research Methodology 5
Expert Interviews
4
Executive Summary 6
Introduction
Over the last decade, India has emerged as a Fintech industry leader. This can be
largely be attributed to the government initiatives that have led to greater
investment opportunities in this sector while encouraging the consumers to shift
to adoption of Fintech based products and services. Research indicates that at
87%, India has the highest Fintech adoption rate in the world, and is home to the
2nd largest Fintech start-up base in the world. Our research shows that digital
lending, digital payments and wealth management are the three segments under
Fintech where most of the start-ups are concentrated in India.
This report focuses entirely on Fintech lending segment under the broader
Fintech umbrella. We have traced the evolution of Fintech Lending industry in
India while highlighting the key drivers for growth, trends, challenges and
opportunities. The report also highlights new business opportunities and key
success factors for the Fintech lending industry in India, in addition to identifying
bottlenecks faced by the industry, and recommend action steps to unlock the
Market Overview
untapped potential of the industry. The Fintech lending industry can be broadly classified under three major segments-
SME lending, Consumer Lending and Online Lending Platforms. While start-ups started
entering into this industry 2013 onwards largely to capture the untapped credit market,
large tech companies seem to have recently targeted this segment. Credit demand
from MSME and consumers presents an addressable opportunity of USD >1 trillion by
2023.
Most of these big tech companies, which have already been operating in other
segments such as e-commerce, digital payments etc. have large consumer base, and
related consumer data. By applying advanced data analytics, these companies have
developed deep insights on consumer spending patterns. This has enabled them to
come up with their own credit score of consumers based on recent bank history,
repayment trends and other similar attributes. These companies are generally offering
loan products as an add-on facility for consumers.
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Executive Summary 6
Market Trends
Start-ups, non-banking financial companies (NBFCs) and large tech companies
are competing against each other to capture a bigger market share. While
start-ups have relatively lesser access to capital, they possess strong data
analytics capabilities. Major Fintech companies such as Google Pay, Ola,
Amazon, Truecaller, among others, have started entering into the lending
business as a part of their expansion strategy. The major drivers include, easy
market entry and targeted loan offerings due to large customer data insights,
better margins than other Fintech business models such as payments and
financial services, and prevalence of huge untapped market for unsecured
loans.
While we have observed that each of the three types of competitors i.e. start-
ups, NBFCs and large tech companies, have their own strengths, the Fintech
lending industry at large benefits from partnership models. Fintech
companies collaborating with established NBFCs or banks can reduce market Key Findings-
entry time by 50% as compared to applying for its own NBFC license to enter Business Opportunities
the market. In addition, collaborating with NBFCs enables both partners to The major business opportunities prevailing in the Fintech lending industry are-
launch combine product based on customer portfolio. Strong data analytics, • Point-of-sale (POS) based lending which provides easy access to merchant related data
effective partnerships and low default rates are key success factors in this which allows easy credit check.
business. • Peer-to-peer (P2P) based lending allows individuals to lend to another individual.
• Invoice based lending aims at financing merchants against the amount due from
customer i.e. account receivables
• Short term lending gives users credit in customized manner, which allows them to make
instant purchases. The ‘buy now, pay later’ model based on a similar concept is being
adopted by companies to target a new set of customers. Even as new business models
are being used to penetrate the market, increasing credit demand from consumers and
MSME offers an addressable opportunity in the coming years.
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Executive Summary 6
8
India Has Emerged As A Fintech Industry Leader
Highest Adoption Rate in the World 2nd largest Fintech Start-up Base in the World
India 1500+
87% 1100+
Global
64%
USA India
1.2
33
2016 2020
2016 2020
Fintech Transaction Value (in USD bn) Fintech Software Market in India (in USD bn)
Source: EY Global Fintech Adoption Index 2019 , Yes Bank Report, Tracxn 9
Diverse Fintech Landscape in India Illustrative List of Start-ups
DIGITAL LENDING 330+ Start-ups DIGITAL PAYMENTS 370+ Start-ups WEALTH MANAGEMENT 300+ Start-ups
Digital Lending allow access to loan through Digital Payments allows making payments Digital Wealth Management offers tools,
digital mean and with minimal paperwork through digital instruments platforms for investments advisory
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Rapidly Growing Fintech Lending Landscape in India
SME Lending
Providing fast credit to small and medium enterprises through digital platform
2018
100
Entry of Lending Start-ups
Tech start-ups found lending business to be
attractive due to large untapped market
50
CAGR: ~6%
Low Penetration of Traditional Financial Instruments
~ USD 900 bn
• ATM penetration rates 0.5X global average
• Credit card penetration at 0.01X in India compared to USA ~ USD 640 bn
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Lending Market Attractiveness- Better Data Better Analysis Better
Margins
Better Margins High Volume Market
2
Lending can offer better margins compared to other Huge untapped market of unsecured loans
Fintech business models like payments, financial services
etc.
1 3 Transactional Data
Customer Data Enabling Market Entry Business transaction data help companies to understand
Large companies are sitting on huge volumes of the needs and offer them targeted and customised loans
customer data making it easier for them to enter 4
Illustrative List
Source: News Articles, Tracxn, NASSCOM 16
Start-ups, Large Tech Companies And NBFCs Are Key Competitors
NBFC / Microfinance
Huge customer base
Established brands
Distribution and reach
Ideation Apply for NBFC License NBFC License received To offer credit To offer credit To offer consumer
and insurance to and insurance to loans for electronics,
Combining Data and Technology Requirement of minimum net Lending from own balance sheet consumers and consumers and home appliances etc.
owned fund of ÙSD 0.29 mn can start after receiving the sellers sellers
(INR 2 crore) license
Use Case:
6 months 12 months 17
Source: News Articles, NASSCOM
Case Studies- Partnerships and Default Rate
Nelito has partnered with Sonata Finance (a USD 212bn
worth of asset based NBFC providing microfinance loans
Low Default Rate
20
Data is the Holy Grail in Fintech Lending
Illustrative Data Sources
Online Spending Data
Purchases and selling on online
platforms like Amazon, Flipkart etc.
Avg. online retail spending at USD
224 per online buyer Credit Bureau Data
Bureaus Provides credit score of
SMS Data individuals by looking at
SMS has all kind of individuals repayment behaviour
information like credit, debit Risk Tier Borrower
in the accounts
Prime Plus 801-900
210 billion messages
travelled in 2018 Prime 751-800
Near Prime 651-750
Subprime 300-650
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FINTECH LENDING
BUSINESS
OPPORTUNITIES
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POS Based Lending Is The Fastest Growing Lending Solution Segment
Point of Sale based Lending
It aims at financing merchants who use swiping machine for payment acceptance
Target Segment Business Highlights Key Data Sets for Credibility Market Numbers
724
Check
POS based lending provide easy access to • Swipe Machine Transaction Data CAGR
merchant related data which allows easy 11%
credit check. Data parameters provided by • Sellers Data on e-commerce
platform like Amazon, Flipkart etc.
POS are: 236
Merchant Profiles: category,
business address etc.
Key Players Transaction Data: Time, date,
debit/credit of transaction 2016 2022
Post business Data: tracking the India POS Terminal Market (in USD
health of the business mn)
POS market expected to grow at 11% till 2022 due to digitization focus
POS industry in India can reach valuation of USD 3 bn by 2024
Target Segment Business Highlights Key Data Sets for Credibility Market Numbers
Check
4000
P2P based lending is the consumer • Credit Bureau Data CAGR
type of lending allowing an • Expense Tracker Apps >100%
individual to lend to another
individual. It has certain benefits:
Lender
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Key Players Better Returns: Up to
30%
Monthly payment with 2016 2022
interest
Borrower India P2P Market (in USD mn)
P2P lending market is expected to reach USD 4-5 billion by 2023.
With no credit history
once can ask for loan Only 30+ players in market have RBI licenses for executing P2P business.
Paperless application
Target Segment Business Highlights Key Data Sets for Credibility Market Numbers
63
Check
Credit history of the merchant CAGR
• POS Terminal Data ~20%
can be checked whose invoice • Bank Transaction Data
needs to be discounted • Merchant transaction data from e-
NBFC credit squeeze have a commerce
direct impact on invoice based
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lending due to shortage of
Key Players working capital
2007-08 2015-16
Number of MSMEs in India (in mn)
High growth in number of SMEs in past 10 years
SMEs are discounting bills worth more than USD 140 mn every month
Mandatory for companies with turnover USD 70 mn to be part of TReDS (Trade
Receivables Electronic Discount System)
Target Segment Business Highlights Key Data Sets for Credibility Market Numbers
144
Check CAGR
Offer flow of money in the
• Credit Bureau Data ~10%
form of flexi EMIs • Expense Tracker Apps
88
Most of short term loans are • Bank Transaction Data
dispersed in hours or within a
day or two.
Key Players
2015 2018
Credit under the personal finance segment
(in USD bn)
Credit under the personal finance segment at USD 144 bn
Catering to wide market like salaried individuals, college students etc.
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Risks / Challenges with Fintech Lending
Liquidity Squeeze
Liquidity squeeze can cause interest
rates to rise directly impacting end
customers
Skill Deficit
Default Rate Fintech lending companies struggle to get
Business viability is questionable as skilled professionals
default rate increases (>6%)
Bad Loans
Bad loan ratio of NBFCs climbed to 6.6%
Source: News Articles, NASSCOM from 3.6% in past 5-6 years 31
NASSCOM
RECOMMENDATIONS
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NASSCOM Recommendations
Address issues pertaining to digital on-boarding of customers Support new technology and innovation in lending
• Modifying MoF circular for the use of Aadhaar
Encourage lending • RBI has excluded innovations pertaining to credit
Reconsider the application authentication services by non-banking entities
products/services/technology information and credit registry, from the sandbox,
process for e-KYC • Allowing lending companies to directly approach to be tested in sandboxes this exclusion will foreclose innovation where we
UIDAI for e-KYC authentication facility need it the most
Suggest appropriate To act as a connect between • Catalyzing the whole discussion between
modifications to various KYC • Making suggestions to the government on how Start-ups/ Industry and government, industry and start-ups focused on
related policies to simplify the KYC rules Government implementing new age lending solutions
Proactive adoption of • Industry should show interest in the new Provide support to new age • Traditional lending companies should
digital KYC process of video KYC tech start-ups collaborate with new age Fintech start-ups
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What To Expect in Fintech Lending In 2020
Source: NASSCOM 35
KEY CONTRIBUTORS
Ashish Aggarwal
Senior Director, Policy, NASSCOM
Gaurav Hinduja
Co-Founder, Capital Float Ashish Varun
Head - International Sales,
Marketing, Nelito Systems
Sampad Swain
Co-Founder, Instamojo
Abhishek Kothari
Co-Founder, Flexiloans.com
Sony Joy
Head, TrueCaller Pay
Siddharth Das
Founder, Univ.ai
Pratekk Agarwaal
Chief Business Officer, BharatPe
Rimjhim Srivastava
Deputy Manager, NASSCOM
Harshil Mathur
CEO & Co-Founder, Razorpay
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About NASSCOM 49
The National Association of Software and Services Companies (NASSCOM®) is the premier trade body and chamber of commerce of the Tech industry in India
and comprises over 2800-member companies including both Indian and multinational organisations that have a presence in India. Our membership spans
across the entire spectrum of the industry from start-ups to multinationals and from products to services, Global Service Centers to Engineering firms. Guided
by India’s vision to become a leading digital economy globally, NASSCOM focuses on accelerating the pace of transformation of the industry to emerge as the
preferred enablers for global digital transformation. Our strategic imperatives are to reskill and upskill India’s IT workforce to ensure that talent is future-ready in
terms of new-age skills, strengthen the innovation quotient across industry verticals, create new market opportunities - both international and domestic, drive
policy advocacy to advance innovation and ease of doing business, and build the Industry narrative with focus on Talent, Trust and Innovation. And, in
everything we do, we will continue to champion the need for diversity and equal opportunity. NASSCOM has played a key role in not just the growth of the
Industry to become a $180+Billion industry today, but we have helped establish the Tech industry in India as one of the most trusted partners, globally.
NASSCOM continues to make significant efforts in contributing towards India’s GDP, exports, employment, infrastructure development and global visibility. Our
membership base constitutes over 95% of the industry revenues in India and employs over 4 million professionals, and as technology blends into every aspect
of the economy, we expect the industry to become key driver of growth, development and inclusion for the country. Our mission is to make India a global hub for
Innovation and Talent so when the world thinks Digital, the world will think India.
Disclaimer
The information contained herein has been obtained from sources believed to be reliable. NASSCOM
disclaims all warranties as to the accuracy, completeness or adequacy of such information. NASSCOM
shall have no liability for errors, omissions or inadequacies in the information contained herein, or for
interpretations thereof.
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